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When Ben Bernanke became chairman of the Federal
Reserve in 2006 he promised a significant change. The Fed would
be much more ‘transparent’ in letting markets and the public know
more about its inner workings, its concerns, its internal
debates, its potential decisions. He has certainly kept his
promise.

But sometimes I yearn for the days of former Fed chairmen
Paul Volcker and Alan Greenspan, who revealed nothing of what
the Fed was thinking. Greenspan was particularly adept at
befuddling even Congressional committees with his famous
“fed-speak” language that left committee members and analysts
asking afterwards, “Wha’d he say?”

That approach of providing no transparency helped get the economy
through a lot of problems during their combined decades in
office. We only found out long afterward how worried the Fed had
been at various times, knowledge that no doubt would have
resulted in several panics had the Fed been transparent with its
concerns at the time.

How well has it worked out having the Fed providing more
transparency since 2006?

In February, 2008 in the early stage of the 2008-2009 recession,
we saw Fed Chairman Bernanke and then Treasury Secretary Paulson
in televised Congressional hearings on the economy and financial
markets. You would think all participants would want to boost the
chances of their new rescue efforts working, by providing the
public with as much positive bias as possible.

But no, in the interest of full transparency, we had Bernanke
warning about how the Fed expected still more negative pressure
ahead from the housing collapse, worsening labor markets, a
credit crunch that may have still more shoes to drop, and
revealing that the Fed was also beginning to worry about the
potential for rising inflation.

That was really brilliant. Spend big bucks on stimulus plans
aimed at boosting public confidence that more serious problems
could be averted, and then completely undermine the effort with
transparency that revealed still more worries in the Fed’s
thinking.

Since then the transparency has increased. The Fed’s statements
after its FOMC meetings have become more revealing, the actual
minutes of the meetings are now released within a few weeks, and
this year Chairman Bernanke has begun holding a press conference
following the meetings to provide any lingering information or
questions not provided in the FOMC statement.

The result has been that over the last three years markets have
been forced to focus not so much on the normal driving forces of
markets, the economy and earnings, but on what the Fed is worried
about, what its members are thinking, what tools it is discussing
that it could bring into play if needed, and what might trigger
potential market-moving action.

And Chairman Bernanke admitted in his press conference yesterday
that the Fed is targeting the stock market as a large part of its
effort to improve the employment picture. He seemed to agree that
QE1 and QE2 did not result in the additional liquidity going
directly into jobs and the economy, and QE3 may not either, but
that it will hopefully lower long-term interest rates, including
mortgage rates, and possibly increase asset prices. And he said,
“To the extent that the prices of homes begin to rise, consumers
will feel wealthier, they’ll begin to feel more disposed to
spend. So house prices are one vehicle. . . . And stock prices –
many people own stocks directly or indirectly. The issue is
whether improving asset prices will make people more willing to
spend.”

One has to wonder.

If using interest rate cuts, and then QE1, QE2, and ‘operation
twist’ to bring 30-year mortgage rates down to generational lows
of 3.6% has not jump-started the housing market to any great
extent, would 3.2% make any meaningful difference? Mortgage rates
do not seem to be the problem for would-be home buyers. Tightened
lending practices, lack of jobs, and uncertainty about the future
are the problems.

Will the dramatic action have its apparent other desired result,
another leg up for the stock market. Or will it result in a
sell-off, given that expectation of the Fed action has pretty
much been factored in since the market’s June low?

For investors, it was bad enough that the action alone indicated
the Fed believes the economy and threat of a global recession
have become so alarming that it could wait no longer and had to
fire off such a huge barrage of measures all at once, virtually
emptying its arsenal of meaningful weapons.

So the further uncertainties Chairman Bernanke felt compelled to
provide in his press conference were not needed, and may have
done more harm than good to the Fed’s intentions.

Bernanke certainly did not take European Central Bank President Draghi’s
positive and encouraging approach. In promising ECB action Draghi
said “The ECB will do whatever it takes to save the euro - and
believe me it will be enough.”

But in his press conference, while saying the Fed’s
target is unemployment, Chairman Bernanke kept repeating that the
Fed’s monetary action “is not a panacea”, that it will not solve
the unemployment or slowing economy problems, that it can only
“provide some support”, that further help would have to come from
the fiscal side (Congress). He also said several times in
response to questions that “The Fed does not have tools that are
strong enough to solve the unemployment problem.”

The Fed’s action would have a better chance of producing the
sustained positive market reaction the Fed apparently is after,
if the Fed had simply taken the action and shut-up. Chairman
Bernanke’s penchant for ‘transparency’ has caused more
uncertainties than clarity over the years since adopted.

And it did so again this time to a degree that a positive market
reaction is far from assured.

Meanwhile, I’m still liking our buy signal on gold and 20%
holding in GLD, and sell signal on U.S. Treasury bonds, and 20%
holding in the ProShares Short 20-year bond etf, symbol TBF.